A primary benefit of an assurance engagement is that it helps the intended users make unimpaired decisions. However, if the wrong criteria are used it will lead to the wrong roadmap by users and business failures. In this article, let’s discuss the benefits and limitations of the assurance engagement.
Benefits of assurance engagement
Assurance engagement enables the subject matter to be reliable. Since a professional and trusted practitioner has examined and/or evaluates the subject matter, it makes users rely on it during the decision process.
Credibility means that the information provided is trustworthy. The term goes alongside reliability. Assurance engagement adds credibility to the subject matter. There is a difference between what a professor will say and what a bachelor of science degree holder will do.
The professor’s statement is more credible than the other. In the same vein, professional accountants who have attained CPAs or ACAs engagements will make the subject matter more trustworthy than a certified accountant.
One important aspect of an assurance engagement is added value. In a company’s annual report, the auditor’s opinion of the financial statements is usually published. In most cases, you will find this report or opinion on the page before the financial report section.
The intended users will examine this before the auditor’s report and analyze the financial statements. Therefore, the practitioner’s opinion is an added value to the annual report of the company.
Since an external party has examined the subject matter, all transactions and events that are materially misstated have been noticed and corrected. Therefore, the intended users can make better decisions. Such decisions may not be misleading. Thereby reducing the risk of failure
An assurance engagement will spot areas where the business is not doing well. If the management takes relevant action, it will result in business growth.
Limitations of assurance engagement
If the wrong criteria are used to examine or review the evidence of the subject matter during the engagement it will result in an unreliable practitioner’s opinion. The conclusion of the assurance engagement will impair intended users’ decisions. Thereby increasing their risks.
During an examination or evaluation of the subject matter, it is expected that the practitioner is independent of the top management. They should do their job free from management influence.
The practitioners are not expected to accept gifts or have an interest in the entity in which they are engaged. If they do, it will influence their judgment, leading to wrong reports.
Lack of absolute assurance
The use of reasonable assurance and limited assurance means that the service provided by the practitioner is not a complete one. In an audit engagement, for example, the auditor is not expected to examine all evidence available.
From the total evidence, he will use sufficient, not all the evidence available. What if the evidence not collected in the sample contains a material error? Therefore, the lack of absolute assurance during an engagement may result in a material error that will impair the decisions of the intended users.
The top management may hide some evidence. If this occurs, it will affect the conclusion of the service. The evidence hidden may contain material misstatements. Implying that the practitioner may provide an unqualified report when it is supposed to provide a qualified one.